UK manufacturing growth drops: reaction

British manufacturing eked out growth in April as an economic slowdown in the
eurozone curbed demand for goods, the CIPS/Markit manufacturing survey
showed on Tuesday, raising the risk of a longer recession.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) dropped to 50.5 in April from a downwardly revised 51.9 in March. A figure of 50 separates growth from contraction.

10:22AM BST 01 May 2012

David Tinsley, BNP Paribas

It's obviously quite a disappointing figure and the fact that the weakness is reported to be in export orders is clearly quite worrying and its a concern I suppose because the story needs to be in the UK that it can weather the storm of the eurozone in order to find some growth but because the euro zone looks pretty weak at the start of the second quarter, that's impacting negatively on UK manufacturing as well.

... The big picture is the UK economy is still pretty weak and against that background there's not really going to be any inflationary pressures so it wouldn't be unreasonable actually to extend QE in May although that's not our central call but I could completely understand the committee's logic if they chose to given that some of the risks are materialising in terms of weak activity and international trading risks are looking more worrying than perhaps they were a few weeks ago.

David Page, Lloyds

We're disappointed by the number. Clearly the weaker-than-forecast number reflects the weakness we're seeing globally, particularly in the euro zone but it's contrary to some of the stronger domestic surveys that we've seen.

Nevertheless this weaker number appears to us consistent with stagnation in the manufacturing sector and we wouldn't be too surprised to see a softening in the other PMIs, particularly the services PMI, in the light of this, which questions the momentum the UK economy has going into the second quarter.

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It's disappointing, particularly against the backdrop of an upbeat CBI quarterly survey last week. Perhaps the one positive thing one could say is that the main index remains above 50, which still does suggest that the sector as a whole is expanding, in contrast with the ONS data at least for the first quarter.

Our view is that the Monetary Policy Committee will probably still sanction more quantitative easing next week and this survey is likely to inject an extra dose of nervousness amongst the committee about exactly where the UK economy is right now.

It will be more difficult to say that the survey data are more upbeat than the official numbers. The services figure on Thursday will also be an important bellwether.

Peter Dixon, Commerzbank

It's slightly worse than might have been expected if you do the read-across from the eurozone. I think a 51 number would have been in the ballpark. We ended up with slightly less than that - that's cause for concern. It clearly tells us that international events, probably more than anything, are having an impact upon the UK data. It's all (tied in) with recent data which tells us that the economy is weak and likely to remain so for some time.

Next week we have the BoE meeting, at which the bank will have to decide whether they want to extend the QE project... This is just another piece of evidence that suggests that that decision is going to be far less clear-cut than we perhaps had thought.

Alan Clarke, Scotia Bank

There's very little positive that you can get from this survey. But it does only account for a small weight in overall GDP, so Thursday's services number will be far more important. The combination of the two should still be consistent with a respectable GDP growth so it's not a massive game changer. I think PMIs are a quarter ahead of GDP.

In terms of the numbers that fed in the MPC's decision- making sausage machine ... the numbers have not been as strong as we thought it would be but it's not a blood bath. Given their inflation mandate (which) they've missed quarter after quarter, I think they'll err on the side of caution and not do more QE.